Datadog Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So David, just to start out with -- you and I were talking a little bit ahead of time here. COVID is obviously, it's -- we're excited about news of a vaccine. But for what it is, I mean you guys have certainly, I think, benefited from what COVID will mean longer term in terms of increasing cloud adoption. But just to level set us, talk about what COVID has meant for you guys this year? There's obviously some -- probably some uncertainty. But on the other hand, talk about what -- how you guys see the profound change, the profound benefit to your market opportunity longer term. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 17, 2020 / 3:40PM, DDOG.OQ - Datadog Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So to double click on that a little bit. I mean we just fundamentally believe the whole monitoring observability space, throw in security monitoring as well, could be one of the biggest beneficiaries post-COVID. It's obviously not seeing maybe some of the short-term benefits that a Zoom is seeing. But longer term, we think it's -- there's a profound positive impact on your space. What are CIOs telling you guys right now about monitoring? Where does it sit in the priority level, both today but longer term? Has the priority level increased as a result of COVID?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : And then just to ask the vaccine question because, obviously, that's relevant over the last 2 weeks here. How do you -- what is the -- how do you guys think about the benefit of -- obviously, there's a humanity side of it that we're all really excited about. But from a business or a demand perspective, what does the vaccine mean for you guys?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So yes, that brings me to my next question. And by the way, thank you, everybody, for submitting questions. We'll weave those into the conversation here. But you mentioned, I think, record new ARR adds in Q3, which I think it kind of got lost in the midst because I think everybody was focused on the revenue deceleration, which revenue in your model is -- tends to be a little bit more of a lagging indicator. Can you walk us through, first of all, the factors that have caused the deceleration here? But then conversely, why record new ARR is such an important comment in terms of what that could mean towards revenue growth in the future?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : No. That's -- I think that's -- I thought that was such an important comment from your call, especially as the market's looking forward. And so obviously, there's some uncertainty here in the short term, but I thought that was a really, really bullish comment that you guys made.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So I guess -- and then I'm going to get to some of the questions here after this one. But when you think about -- if you're us and you think about the components of growth over the next several years, the kind of the building blocks, obviously, there's increased cloud usage. I think just the growth in applications, what are sort of the building blocks in your mind that we should think about when we think of not just growth in Q4, but longer term? What sort of the framework that you would help us out with?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's super helpful. And so one of the questions -- I mean this would not be a conversation without a question about competition. I think you guys have been adamant, really, from day 1 that it's not -- you're not going at this market thinking, hey, I need to replace XYZ legacy vendor. But more so, I'm looking at net new. I'm looking at greenfield. And I think that's an important distinction here. Now that said, when you look at a lot of these greenfield net new wins, how do you see the competitors in some of these deals changing? Are they evolving as Splunk rolls out their observability suite or as Dynatrace starts to move out of APM and other categories? Are those greenfield wins? Are the players changing there? And maybe win rates that you guys have seen.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Your success in large deals, customers who spend over $100,000 has been impressive. But obviously, you guys have customers that are spending well over $1 million. Talk about when you're expanding outside of infrastructure and you're going up against more entrenched, sort of -- and I'm not talking about CA or IBM, but I'm talking about some of the more modern peers, why are they choosing your APM solution? When they may be using site, Dynatrace, they may have a large Dynatrace install already, why are these large customers, these G2K or Fortune 100 customers, they're choosing your APM solution as opposed to maybe what they standardized on maybe just a couple of years ago?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's helpful. This is a good question from an audience member, and we get this a lot of time. So I'm glad somebody asked this. But -- so the question is, could you expound upon the observation that customer spend is approaching a level where CFOs are paying more attention? And I'll add on to this. Obviously, as your spend goes up, you start to show up on the radar of CFOs. I'm sure like you look at your spending. So the question is, how do you think about scaling into enterprise-wide license? I think it's reasonably well understood that scaling your current license model does create some friction at higher price points.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : So that's a great answer. And I guess the flip side to this is, when you look at some competitors -- and obviously, New Relic has been in the news recently about cutting price. Does price -- when you're talking to CIOs or customers, how do they think about price? And do they reference that? Or is there enough perceived value that a pricing debate really doesn't -- it's not really in customers' mind at this point?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : One other question from an investor on pricing. And it's going to kind of touch on what you just said, but I want to ask it again. So the question is any thoughts on offering even greater flexibility on pricing, i.e., moving away from volume-based contracts to increase your appeal in large enterprise?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : That's great. Another question -- these are great questions, everybody. So keep sending them in here.Another question says, at last year's conference, both you and Oli highlighted the long-term interest in pushing deeper into ITSM. Can you provide an updated view on that road map?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Okay. another question. It's a good question from an audience member and one that we get all the time from investors. Could you talk about your role in open telemetry and the notion that ingest will be standardized?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Got it. Helpful. Another question, could you talk about Synthetics? You guys called it out in the call. I believe it was -- was it an 8-figure run rate? I think -- I don't recall exactly what it was. That's me, (inaudible). But -- so the question is, would love to understand how Synthetics plays a role in winning business, either the land or expand and order of significance?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : And that's kind of the right order to think about in terms of magnitude of the contribution to the business?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Have you guys talked about the -- I don't recall, I know we talked about it during IPO, but have you talked about the relative size of APM and logs as a percentage of your revenue recently?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Okay. Another question from -- these are great questions, by the way, folks. Could you talk about security? How big is it today? Size the impact over the next 2 years. And what needs to happen for you to be successful? It seems like it's a tough nut to crack because it's a different buyer.

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Got it. On the partnership front, I'd be remiss if I didn't ask about Azure. Obviously, huge news this last quarter. And clearly, it's going to take time for things like that to feather into numbers. But speaking more generally about your -- just your broader partnership strategy, is there a way to think about how many deals or what percentage of your business is either partner-led or partner-influenced? And how might that change, in other words, making it even less frictionless sale. I know you have no services today. So it's a very easy product to use. But how do you think about getting either additional leverage out of tech partners, but also the GSI community?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Just one quick question and then a wrap-up question. And I think this probably is asked in the spirit of kind of like the long-term framework of your model. But have you guys given a definition of what you consider hyper-growth to be for you guys?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Okay. Okay. So then maybe just to wrap, David, and we really do appreciate your time. Obviously, a lot of things to be excited on for the future of Datadog. If you were to think of -- reflect back on 2, 3 years from now, what are we going to look back as the most profound item that's going to positively influence Datadog over the next several years? What are you most excited about effectively?

Question: Matthew George Hedberg - RBC Capital Markets, Research Division - Analyst : Great. Well, I certainly do appreciate your time. Give my best to Oli, the whole team. And thank you, A.J., for helping us with this. Best of luck, guys. And we just -- it's been an incredible 2-year run here, so all the best in the future.